Brazil’s scandal-plagued oil giant suspended its compliance chief while he defends himself against charges of hiring Deloitte on a no-bid contract while his daughter was talking to the firm about a job.
The board of state-run Petróleo Brasileiro SA or Petrobras temporarily suspended João Adalberto Elek Jr., the chief governance and compliance executive officer.
Petrobras said in a U.S. securities filing Thursday that Elek’s division awarded a contract to auditing firm Deloitte while it was in the process of hiring his daughter.
The one-year contract worth about $8 million was awarded on an urgent basis in December 2015 after normal bid guidelines were waived.
The contract was for investigating tips that came through Petrobras’ corruption hotline.
A user of the hotline flagged Elek’s potential conflict in September 2016.
A board committee “concluded that the procurement process was justified and compliant.”
But a government ethics committee found a conflict of interest.
Elek will remain suspended while he appeals, Petrobras said.
Brazil’s three-year Car Wash investigation has resulted in corruption and bribery charges against dozens of business executives and politicians with ties to Petrobras.
This week a former CEO of Petrobras, Aldemir Bendine, was charged in the case.
* * *
Here’s the disclosure from the Form 6-K Petrobras filed with the SEC on August 24, 2017:
Rio de Janeiro, August 23, 2017 – Petróleo Brasileiro S.A. – Petrobras reports that its Board of Directors, in a meeting held today, analyzed the decision by the Public Ethics Committee of the President of the Brazilian Republic (“CEP”) to issue a warning to the Chief Governance and Compliance Executive Officer (“GCEO”), João Adalberto Elek Júnior.
After analyzing the subject, the Board of Directors has adopted the following decisions:
A) Officer João Elek shall be temporarily removed from the post effective today until the appeal he will file with CEP is ruled by said Committee;
B) the Deputy Officer shall answer for GCEO work.
The Board took its decisions based on the following considerations:
1) Officer João Elek’s daughter was hired by an audit firm for a starting position through a competitive recruitment process that lasted from September 2015 to March 2016, and was based on resume submission, interviews, and various tests. At no time did her duties involve matters connected to Petrobras. On the same month of March, the Officer informed the Petrobras Ethics Committee that his daughter had been hired.
2) On the other hand, GCEO decided to hire an expert audit firm, under bidding process waiver, to provide investigation services for accusations received by our Reporting Channel. Bidding process waiver was justified considering the risks that could be generated to the company, such as delays and/or interruption of such works, including the weakening of governance within Petrobras. This procurement method received favorable opinions from internal audit and the legal department and occurred on a later date to the start of the recruitment process in which Officer João Elek’s daughter participated. The contract between Petrobras with the audit firm was signed on 12/18/2015.
3) A questioning received by the Reporting Channel in September 2016 pointed to a possible conflict of interest as GCEO had hired the company where Officer João Elek’s daughter worked. The Petrobras Ethics Committee forwarded the subject to CEP, pursuant to current law.
4) Additionally, and in fulfilling its diligence duty, the Board of Directors created a special committee composed of board members led by the Audit Committee Chair, who is an independent Board member. This committee thoroughly examined the subject, and requested the internal audit area to carry out additional investigation on the procurement process. The Board Committee concluded that the procurement process was justified and compliant, whereas urgency was demonstrated and all other requirements from our governance were met, including cross-signature procurement. The Committee, based on the evidence found and its best judgement, also understood that Officer João Elek had not breached conflict of interest standards.
5) Nevertheless, CEP, in its report on the case, disagreed with part of the Special Committee’s understanding, considering that there was conflict of interest due to the fact that Officer João Elek should not have participated in the procurement process, “since his daughter already participated at the time of the recruitment process for this company, and at that time was already considered apt to being hired.” This situation in itself, in the opinion of the Public Ethics Committee, constitutes conflict of interest. On the other hand, CEP confirms the understanding of the aforementioned Committee that it is possible to conclude that “there are no elements suggesting undue influence as described by the anonymous accusation to Mr. João Elek” in his daughter’s hiring, that the bidding process waiver procurement complied with the relevant applicable internal procedures and standards, and the contractor company was selected due to its advising expertise in the areas of interest of Petrobras.
6) Given the warning penalty issued by CEP, and the nature of the position held by Mr. João Elek, the Board has decided to temporarily remove him from office until his appeal is ruled.
Richard L. Cassin is the publisher and editor of the FCPA Blog.